Overnight, Merck filed more disclosure materials with the SEC, related to its thinking in soliciting bids for each of the Schering-Plough, and Merck, Animal Health businesses -- and/or various combinations thereof.
I continue to believe that the empirical evidence would suggest the shareholders rarely see much additional value, or benefit, when what was once-styled as a merger-of-equals morphs into a "bust-up" transaction. Paying down corporate debt with the proceeds from the planned sale of one or more of the busted-up businesses rarely leads to an immediate, sustainable increase in the value of the stock (in this case, of either Merck, or Schering-Plough). Thus, I think such transactions are often sub-optimal, in terms of unlocking shareholder value.
One notable exception to the above rather bleak state of affairs -- would be if very substantial portions, or all, of these businesses were to be dividended, or spun-off, to the existing common stockholders (of Schering-Plough, or of Merck), as a separately traded NYSE-listed security -- then the shareholders would presumably have an additional asset to either hold, or divest, distinct from the larger Merck or Schering-Plough equity they now hold. We'll see, but I'd be surprised if any of the offering books contemplate any part of these Animal Health businesses being spun-, as opposed to being sold-off, for cash, or debt reductions.
In any event, the full SEC filing, then:
. . . .Merck Statement on Animal Health Businesses
Media reports are circulating that Merck is considering selling Schering-Plough's animal health business or our interest in Merial as part of the companies' proposed merger.
While the Animal Health unit is an important part of Schering-Plough, Merck is currently participating in this market through our JV with Sanofi-Aventis (called Merial) which had sales of $2.6 billion in 2008. This does add some complexity to the regulatory clearance process for the proposed merger.
As a result, Merck is continuing to explore all of its strategic options for the animal health business. These include divesting Merck's 50-percent interest in the Merial joint venture or divesting the Intervet/Schering-Plough Animal Health business, among other possibilities.
As we said at the time of the merger announcement, these are both strong businesses and Animal Health is an area in which we will continue to operate. We also said that we have a variety of options with respect to the animal health businesses and we intend to explore the opportunities open to us. We are doing just that.
There have not been any decisions made at this point and it would be premature to speculate about any eventual outcome.
As we continue to explore our options, you should expect continued media attention and speculation about these or other options. . . .
5 comments:
Come on, they have no intention of selling off both businesses. Sanofi was trying to screw them on buying out Merial, so they are exploring their options and could just as well sell off Intervet and keep Merial. There is an extremely small likelihood that they will sell both.
Well -- I agree -- CEO Dick Clark said "Animal Health is an arena in which we intend to continue to operate", just last night, as quoted above.
That said, if CEO Clark receives a high enough bid, he would sell it. That much is evident in his past wheeling and dealing.
But don't kid yourself -- Fred Hassan (and the Schering-Plough board) will have almost no say in these matters.
These are CEO Clark's shots to call.
As ever, we will see. I do believe both Hassan and Clark would sell (have sold!) their own families' heirloom silverware, if offered a high enough price.
That is -- the AH businesses hold no sentimental value to either of these guys.
So -- "the price makes the horse", here.
Merck could conceivably end up selling the Intervet biz -- then taking a buyout from Sanofi-Aventis on the Merial assets -- the $7 billion of commited financing could be vastly-reduced; with no need to carry all that interest burden on into 2011 and 2012 -- when Sch-Merck will STILL be facing formidable patent cliffs ("in substance" ones) -- despite what they are now saying. . . . As ever, stranger things have happened.
Namaste
I don't always agree with you, but I think you are generall right. Just my two cents from the Animal Health side of the biz. Despite Merck's comments, many (most?) people in Intervet/SPAH don't think Merck is all that interested in animal health -- and definitely not as a direct participant. They'll stay in it if it's not a bother and doesn't drag down earnings, but that doesn't mean they see AH as an important business. So even if Merck sells its Merial stake -- which is the easiest and fastest way to get government clearance -- we are still VERY skeptical about Merck's long term or even medium-term commitment. If you were to take a poll, I would guess that less than 25% of the current employees believe they will be part of Merck by the end of 2010, even if Merck sells Merial.
Also, the spin-off idea is interesting but dicey. There's a lot of reasonw why the animal health world doesn't have many large players who aren't affiliated with a human pharma company. We have a good business, but I still don't think a spin-off company would be successful -- and as a result I don't think it will be an attractive target for investors.
Sanofi has only a few more days to decide -- will it claw back the rest of legacy Schering-Plough's Intervet?
We shall soon see. Once again -- the truth may well prove "far stranger" than anything we could make up.
Namaste
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